Bernanke II: Obama vote of confidence in his Fed chair was expected. Now comes the true test.

HOUSTON CHRONICLE |
August 28, 2009

There's a clear element of anticlimax in President Barack Obama’s nomination of Ben Bernanke to a second term as Federal Reserve chairman. The shocker headline would’ve been written if Obama had chosen anyone else. Bernanke’s selection to continue as chair of the central bank reflects Obama’s judgment that the economy is moving in the right direction, that Bernanke has been a major influence in righting things, and that it would be needlessly disruptive to change the leadership of the nation’s central bank in mid-course. The move to retain him was widely expected by most all concerned — from Wall Street to the leadership of other central banks across the globe. Indeed, it appears to be about as close to unanimous as it gets. Prior to its announcement, the selection of Bernanke was approved by 42 of 43 leading economists polled by The Wall Street Journal, as well as the presidents of the European Central Bank and the Banks of England and Canada. Obama’s renomination of Bernanke, a Republican first selected by President George W. Bush in 2006, also continues a long-standing trend of bipartisanship in the selection of Fed chairs. His predecessors, Alan Greenspan and Paul Volcker, were nominated and renominated by presidents with different party affiliations. Bernanke has his critics. One is Dean Baker, head of the Center for Economic Policy Research, a left-of-center Washington think tank. Baker chastises Bernanke for failing to recognize and deal with the housing bubble, and for failing to be fully transparent in the uses of the so-called TARP (Troubled Asset Relief Program) money. On balance, however, Bernanke is viewed by knowledgeable observers as the right man in the right place at the right time. His field of scholarly interest as a professor of economics at Princeton University was the Great Depression, an almost prescient choice given the circumstances he has been asked to deal with since last summer. In making the announcement of Bernanke’s renomination, President Obama cited Bernanke’s “outside-the-box thinking” in helping the economy to revive. That process of economic revival is still very much a work in progress. In particular, lingering high unemployment rates are preventing too many American workers from seeing even a glimpse of recovery in their day-to-day lives. And the deficit continues to balloon. Just this week, Treasury officials announced that projections of the cumulative deficit for 2010-2019 have grown from $7 trillion to $9 trillion. And that may be an understatement. Those are the kinds of numbers that rightly give thinking Americans cause for concern. Then there is the specter of inflation. Once the economic recovery kicks into high gear, many economists expect to see pressures on prices, especially in commodities such as oil, steel and strategic minerals, that could eventually return the country to the dreaded stagflation of the late 1970s and early 1980s. If this were all playing out in a traditional academic setting rather than the corridors of power in Washington, Ben Bernanke’s reappointment to the Fed chairmanship might be considered a presidential grade of “pass” on his midterm exam. His second term is likely to bring this Fed chairman a final exam the likes of which has never been seen. We should all root for him to pass that test, too.